On October 16, the Consumer Financial Protection Bureau (CFPB) issued the 2014 Student Loan Ombudsman's Annual Report. The report analyzed private student loan complaints received by the bureau over the past year and highlighted the challenges faced by distressed borrowers while encouraging lenders to help borrowers avoid default.
5 Key Takeaways
We don’t disagree that there are likely opportunities for several lenders to make improvements that will benefit borrowers. As a credit union-owned and credit union-directed organization, Credit Union Student Choice exists to serve members. In partnership with nearly 250 credit union clients, we continually strive to improve our solution. That being said, while the report focused on borrower challenges, we do think it's important to put a few things in perspective:
The complaints tracked by the CFPB represent a small share of all private loan borrowers — less than 0.1%
A look at individual stories in the CFPB complaints portal shows that consumers are often complaining about both federal and private student loans, a disconcerting fact considering the CFPB is using this information to monitor private student lenders.
Of the complaints lodged, only 0.1% were associated with credit unions (that consists of just five borrowers, or less than 0.001% of all U.S. borrowers that have private student loans with a credit union)
Indeed, as the CFPB stresses on page 10 of the report, "Readers should note that this report does not suggest the prevalence of the issues described as they relate to the entire student loan market."
The CFPB also points out that fallout from the boom years of private student lending (mid-2000s) continues to impact borrowers. Per the report, "While risky loan origination practices prevalent in the market in the years leading up to the financial crisis have subsided due to changes in lender and investor risk tolerance, many borrowers are still struggling to repay the loans they borrowed during this period." Student Choice was founded in the midst of the financial crisis and has been built on a solid foundation of best-practice lending that is different from the lending that was occurring prior to the financial crisis. Our efforts have resulted in an exceptionally high-performing loan portfolio that serves borrowers and credit unions well.
A Solution That Works For Credit Unions And Members
At Student Choice, we focus on doing things the right way for our borrowers from start to finish. First and foremost, that includes responsible underwriting that factors in credit score, co-borrower presence, school quality, and loan certification.
Secondly, offering pertinent tools and resources that educate borrowers on how to responsibly pay for education has been a hallmark of our solution since day one and is an even greater focus as we move forward. The importance of those factors, in conjunction with the value and service delivered by our partner credit unions, is apparent in our lending results. The majority of borrowers are meeting payment obligations without any assistance. Consider the following stats on the overall Student Choice portfolio:
For borrowers in full repayment, the 60-day delinquency rate is less than 2%. The 90-day delinquency rate registers well under 1% (as of August 31, 2014). Based on our experience over the past six years and future projections, both fall well within our expectations.
The charge-off ratio is only 0.61% (as of June 30, 2014). This is one of the lowest default rates of any consumer lending product.
For those borrowers in need of short-term assistance, we have multiple options, including short extensions, forbearance options (such as in-school, military, administrative), and graduated repayment plans. The majority of borrowers that experience payment difficulties fall into the short-term category and can be greatly helped by these options. Our goal, and the goal of all of our partner credit unions, has always been to responsibly help members with loans they can successfully repay. Ultimately, credit unions can be proud of the private student lending program offered through Student Choice.
Scott Patterson is the president of Credit Union Student Choice and vice president of new business at Callahan & Associates.